nathan tankus wrote: > "But this currency isn't scarce, so it's not really money." > > it's not money because there is no reason for others to use it as a > unit of account. i guess i don't know what you mean by scarcity. are > you talking about the amount of real resources (whether in accumulated > physical stocks of goods or flows of factor payments) it takes to > discharge taxes (in this case none because i have no ability to > enforce tankus taxes) ? scarce relative to what?
To say that "it's not money because there is no reason for others to use it [the Tankus] as a unit of account" puts the cart before the horse. Why is it that the Tankus isn't used as a unit of account, a means of exchange, and a store of value? Something that's "money" has to be scarce relative to the goods, services, and non-money assets which people want to buy with it. (There can also be no close substitutes for the money that aren’t scarce.) If it's not scarce, its price is zero (or effectively equal to zero) so that it takes an infinite number of its units to buy any goods, services, etc. (Given transactions costs, the value of the “money” in circulation with a very small scarcity-value would effectively be zero.) Also, if its price fluctuates a lot in an unpredictable way, the would-be money wouldn't be a very good unit of account or store of value. There are two main kinds of scarcity that can make something into a money: first, it takes real resources to produce it (as with commodity money), enough so that its supply isn't so elastic that its price falls to zero. If money grew on trees, we'd all rush out and harvest the money trees and buy stuff we want. Unless the trees were denuded quickly, the tree-money would lose its scarcity-value. (I assume here that there are no barriers to harvesting or planting trees.) If the price of the tree money (in terms of buying goods, etc.) exceeded the cost of producing it, there would be an incentive to plant money trees until the price of money fell to the cost. This is sort of what happens with gold money: the price of gold tends to fall to the cost of its production. The cost of its production maintains the would-be money's scarcity-value. Money that’s simply declared on a computer has such a low cost of production that the scarcity-value and price would equal zero. The second kind of scarcity is the one I assumed away above: artificial scarcity. If you can monopolize the planting of money trees and their harvesting, then money could be grown on trees. This is the idea behind fiat money (where the Fed owns and controls the trees in the U.S.) The state collects a scarcity rent (with price above cost) or “seigneurage.” (Of course, the state works hard to prevent counterfeiting, which undermines the scarcity-value of fiat money.) (There’s also accidental scarcity: Saddam Hussein’s dinars continued to be treated as money after his overthrow because there was no chance that new ones would be produced (it’s not worth it to counterfeit beat-up old bills, as far as I can see). The occupying forces suppressed them, likely seeing them as competitors to the official money.) Once a would-be money is scarce (in either way) and has a stable price, it can be a store of value. But not every scarce item is money: no-one would use a Picasso oil painting as money. To be a good and useful kind of money (and to beat out competing would-be moneys), it must also be durable, standardized, portable, non-toxic, and divisible -- and thus generally acceptable to people. (That is, there's a demand side to the issue.) These characteristics make it a liquid asset, so that people use it as money. Nathan also writes; >by royal decree, tankus's [Tanki?] can only be transferred by an email sent >from this email address. if jim devine wants to transfer tankus's to someone >else, he must tell me to re email pen-l with his new account balance and email >pen-l with the reciever's new account balance. (this isn't very different from >the federal reserve's system of transferring funds by transferring electronic >reserves from one bank's reserve account to anothers)< This isn't really money since it wouldn't be in general circulation and it wouldn't be a liquid asset. I couldn't use my Tanki to buy Doritos at the mini-market. (alas!) Fiat money is accepted as money not only because it's scarce but because it's generally accepted by people. Here, the government playing a big role as the backbone of that acceptance: we can use our fiat money to pay taxes and government fees. Tanki would be debt without being money. In the example, Nathan would owe me money (_real_ money), which back up his Tanki or I would attach absolutely no value to them. It's not a good kind of debt (from the creditor's point of view) since Nathan could print as many of them as he wants, potentially making them non-scarce. If people started accepting his Tanki as money, Nathan would have the incentive to print a large number of them. It's true that the Fed moves money electronically from one account to another. But the overall supply of money is kept from growing too much that it causes its scarcity-value from falling to zero (except in a Tea Pothead's nightmares). -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
